Legal effects and legal consequences of certificates of representation of foundations with legal capacity

In the case of legal transactions, foundation boards are happy to rely on certificates of representation issued by the foundation supervisory authority as legitimation. The legal quality of such documents and the legal consequences and legal effects they entail are questionable. The following contribution is intended to show that the legal certainty sought by the use of certificates of representation cannot be achieved.

 

1. lack of a register of foundations

In German foundation law there is no register of foundations, as is the case for associations with the register of associations or for partnerships and corporations with the commercial register. >g id=”gid_0″>
1
. This situation is also known from the field of legal persons under public law.

An existing register has a publicity effect. The public can rely on entries made in the register. The register publicity² serves the maintenance of the commercial traffic under the aspect of traffic protection³. This shall apply in any case in the case of good faith on the part of the party having access.

It follows from the publicity effect that the legal representative, the board of directors of the association or the managing director/board of directors of the trading company can also legitimize themselves in legal transactions by means of the corresponding registration. This possibility does not exist for the foundation’s board of directors, due to the lack of a foundation register.

In the past, several attempts have been made in the field of foundation law to introduce a corresponding register of foundations and their representatives
4
. These efforts have not yet been able to prevail. These considerations were also not taken up in the Law on the Modernisation of Foundation Law in 2002, the last amendment to the Law on Foundations,
5
.

This leads to the dilemma that the public cannot form a reliable picture of the representative authority of an acting executive board of a foundation, and the foundation’s executive board itself cannot refer to such a register for its legitimation.

Nevertheless, in practice, for example in register matters of the foundation
6
a need for the legitimacy of the legal representatives of the foundation, as otherwise the foundation would be deprived of its capacity to act. For example, if a foundation has been appointed as heir, only a legitimate board of directors can apply for a certificate of inheritance.

In the meantime, some state foundation laws have alternatively opened up the possibility of keeping foundation directories
7
. These contain the essential details of the foundation, such as name, purpose, registered office, organs or representation
8
. However, these are only mere means of information and do not protect the confidence of legal transactions in the correctness and completeness of the entries contained in them
9
.

 

2. certificates of representation

In this situation, it has become common practice for foundation supervisory authorities, which act as legal supervisors of legally capable foundations and are therefore familiar with the circumstances of the foundation they supervise, to issue so-called representation certificates. In these certificates, the foundation supervisory authority confirms that the persons named therein are authorized to represent the foundation.

There was initially no explicit legal basis for the adoption of such certificates. The legitimation for the issue of a certificate of representation was derived from the general fulfilment of the tasks of the foundation supervisory authority
10
,

In the meantime, some federal states have made provisions in their state foundation laws that allow these states or their supervisory authorities to issue certificates of representation. >g id=”gid_0″>
11
.

Insofar as such a provision has not been included in the respective state foundation law, or for periods prior to a corresponding amendment to the law, these states continue to derive the legitimation for issuing certificates of representation from the general fulfilment of the tasks of foundation supervision.

 

3. declaratory administrative act

Bavarian foundation supervisory authorities, for example, take the view that the certificate of representation is a declaratory administrative act within the meaning of Article 35 BayVwVfG.

By common definition, declaratory administrative acts are those by which legally relevant facts in relation to an individual case are bindingly established or rejected. They are therefore declaratory in so far as the provision made in the administrative act establishing the facts reflects what the Authority considers to be the substantive legal situation in the individual case. A declaratory administrative act is therefore not intended to change a substantive legal situation. If the finding is not in accordance with the applicable law, the administrative act establishing the finding is only unlawful, but it remains in force until it is repealed and cuts off the ‘enforcement’ of substantive law, without for that reason alone becoming a constitutive administrative act. The declaratory sentence of an administrative act is thus limited to stipulating the result of an official subsidy principle, without itself attaching legal consequences to it, for example in the form of (enforceable) orders or prohibitions, permits or guarantees of performance. >g id=”gid_0″>
12
.

When issuing the certificate of representation, the foundation supervisory authority determines who is a member of the foundation’s board of directors on the basis of the foundation’s statutes and the information provided by the foundation, e.g. documented by resolutions, for how long and, if applicable, in which function. In addition, the statutes are used to check whether individual or joint power of representation exists. The legal supervisory authority assumes a subsumption process and, with the regulation made in the certificate, reflects what it considers to be the substantive legal situation in the individual case. However, the authority does not change the legal situation in the process. Legal consequences such as bids, approvals, etc. are not linked to this. External effect is given by the fact that the certificate is issued to the foundation or banks or the like. According to this view, representation serves not only to prove who is authorised to represent the foundation, but also to establish by means of subsumption.

 

4. effect of the certificate of representation

It is sometimes argued that the certificate of representation has the effect of a power of attorney which the foundation has to accept as valid against itself by analogy with § 172 BGB
13
. Thereafter, the power of representation notified with its help remains in force until the power of attorney is returned or declared invalid
14
. As a further consequence, according to this view, the legal certificate of representation is only not valid if the counterparty knows or must know the expiry of the power of attorney when the legal transaction is carried out
15
.

A foundation’s board of directors who makes use of a certificate of representation cannot subsequently claim that it is incorrect.

This is an expression of the general legal principle of the prohibition of venire contra factum proprium
16
.

This opinion is aptly countered
17
that there is no publicity effect due to the lack of an existing foundation register, independent of a regulation under state law to keep foundation registers.

Accordingly, representation by persons shown in such certificates as having comprehensive power of representation is generally not attributed to the Foundation, even in relation to counterparties acting in good faith. The certificate of representation has no publicity effect, unlike in the case of incorrect entries in the register. This corresponds to the lack of a legal basis on which certificates of representation are based.

In the case of a counterparty acting in good faith, this view is based on a possible official liability claim by the foundation supervisory authority pursuant to Art. 34 GG, § 839 BGB for damages
18
.

If a certificate of representation exists, the material correctness of which is in doubt, then, in the absence of good faith, compensation for damages arising from official liability, which would otherwise be possible, is not enforceable.

The foundation is not bound by any legal transaction if the certificate of representation is incorrect and there is a lack of good faith on both sides of the equation
19
. In this case, therefore, the dispute may become a matter of opinion.

 

5. the certificate of representation has no constitutive effect

The instrument of the certificate of representation cannot be used to appoint or remove members of the board of directors of a foundation, for example. The certificate of representation has only declaratory effect
20
.

The possibilities for the foundation supervisory authority to appoint or dismiss members of the board of directors are strictly limited by the state foundation laws
21
The foundation supervisory authority may only intervene under the conditions set out therein if there is an internal danger to the foundation, e.g. in the event of breaches of duty by the executive board.
22
.

In all other respects, the Land foundation laws are subsidiary to §§ 29, 86 BGB (German Civil Code)
23
which regulate the judicial appointment of emergency boards of directors
24
.

The effective appointment of a foundation board in accordance with the statutes and the associated legal capacity of the foundation concerned cannot be derived from a certificate of representation.

Controls by the legal supervisory authorities on the composition of foundation boards in accordance with the statutes are often inadequate. For example, provisions in the articles of association regarding time limits or conditions of board activity
25
no organised instruments of the foundation supervisory authority are used to monitor compliance with these regulations
26.

As practice shows, changes in the composition of the foundation’s board of directors, which are reported to the foundation supervisory authority, are not always checked for their correctness in accordance with the statutes. Existing uncertainties can be comfortably “cured” with a certificate of representation.

Legal transactions concluded for the foundation by alleged board members in this situation are – with corresponding consequences – pending approval by a legitimate board of directors, all of which are provisionally invalid. At this stage the foundation is legally incapable of acting.

 

6. official and board liability

Representation certificates are regularly issued without formal and at the same time substantive examination on the basis of documents with a clear result. Foundation supervisory authorities thus carelessly expose themselves to official liability claims
27
.

According to settled case law, in addition to the employment corporation of the supervisory officer, the organs and other representatives of the foundation are also liable in accordance with § 839 BGB. The Foundation must have their fault set off against the claim, §§ 86 sentences 1, 31, 254 BGB
28
.

Only if the foundation supervisory authority is only charged with negligence and if the foundation succeeds in making use of the organ or the representative, the authority is discharged, § 839, para. 1 sentence 2 BGB.

Some state foundation law
29
stipulates, to the detriment of the supervisory authorities, that honorary organs of the Foundation shall only be liable for intent and gross negligence, unless the Foundation’s statutes stipulate otherwise. According to the principle “federal law breaks state law”, however, it remains questionable whether such regulations are unconstitutional.

It is conceivable that the supervisory authority and the foundation’s bodies could be accused of endangering assets within the meaning of § 266 StGB. Then even an insurance policy against financial loss, rarely found among those involved, would not provide cover. For example, if the foundation in question is a real estate owner and has taken out suitable home and landowner liability or other building insurance, the insurer could, in the event of damage, have the idea of questioning the legitimacy of the foundation’s bodies. If the foundation’s bodies succeed on request pursuant to § 177 para. 2 BGB not to approve in time possible pending insurance contracts by verifiably duly appointed organs, then ineffectiveness occurs, with which no insurance benefit can be expected. The option of having an emergency board of directors appointed by the responsible judicial officer at the court of registration in accordance with §§ 29, 86 BGB will hardly be decided in practice in time.

 

7. result

In federal states which have not made any corresponding legal provision in their state foundation laws, certificates of representation are issued without an explicit legal basis.

According to the current practice, certificates of representation per se do not, for this reason and due to a lack of publicity in the register, lead to a legal obligation of the represented foundation.

Even the classification as a declaratory administrative act by the foundation supervisory authority does not affect this civil law assessment. If there are doubts about the power of representation of the acting executive board, a claim for official liability against the issuing legal supervisory authority from an incorrectly issued certificate of representation cannot be enforced due to lack of good faith. The submission of a corresponding “confirmation of representation” by the foundation supervisory authority is a pure declaration of faith. It does not legislate. It lacks a legal basis, at least in Länder without a provision in the Landesstiftungsgesetz, and is therefore a legal nullity.

Opponents of the foundation are not much helped by the current certificates of representation. In case of good faith, an attempt can be made to claim damages. However, the desired legal obligation and corresponding legal certainty are not achieved.

The appointment of the foundation’s board of directors, which does not conform to the statutes, despite a certificate of representation to the contrary, does not eliminate the lack of legal representation of the foundation. Legal transactions carried out in this state are pendingly ineffective.

The practical need for binding legitimation of foundation boards can only be solved satisfactorily by introducing a foundation register with publicity effect.

Until then, contractual partners of foundations who want to “play it safe” can only check the foundation’s right of representation independently and materially.

1 Schwarz von Berk, in: MünchHdb d. GesR, Vol., 5, 2009, § 99 Rdn. 46.
2 § 33 HGB.
3 In detail K. Schmidt, Commercial Law, S. Aufl. 1999, p. 335f.
4 Crezeflus/Rawert, ZIP 1999, 37; Schauhof,, ZEV 1999, 121; Wochner, BB 1999, 1441; proposal of the Study Commission of the 44th D.U. in: Report of the Study Commission of the German Lawyers’ Association: Proposals for the Reform of Foundation Law, 1968, p. 17; and § 84 para. 2 BGB- draft of a StiftRe-formG of the FDP faction, BT-Drs. 14/ 5811; and § 83 BGB draft of a StiftFördG of the Bündnis 90/Die Grünen parliamentary group of 1. 12. 1997, BT-Drs, 13/ 9390.
5 Act on the Modernisation of Foundation Law of 15 July 2002, BGB1 I 2002, 2634; Schwarz, DStR. 2002, 1718 (Part 1) and 1767 (Part 2); Burgard, NZG 2002, 697.
6 For example, if the Foundation is the owner of the land and a transfer is to be made
7 Such as Art. 4 para. 1 BayStiftG, since the last amendment of the law on 1. 8.2008.
8 § 4 StiftG BaWü; § 13 StiftG NRW; § 18 StiftG Saarl; 5 14 StiftG Bbg; 11 StiftG Berlin; § 4 StiftGIVIeVo,
9 Staudinger/Raw value, prev. to §§ 80 41: Rz. 78; cf. § 13 StiftG NRW:§ 4 StiftG
10 Staudinger/Raw valueVorbem. Regarding §§ 80 ff, Zr 80, 5th edition, 2006 Campenhausen/HofFoundation Law Manual, 3 editions 2009, Rdn 286.
11 E.g. § 12 StiftG NRW, § 11 NStiftG, § 9 para. 7 StiftG Rhld.-Pf
12 Strlicere/Bank/Sachs, Commentary on the Administrative Procedure Act, 6th ed., § 35 Rdn. 142 ff.
13 Merking, in: MünchHdb d. GesR, Vol. 5, 3. Resl. 2009, § 90 Rdn. 12; Black van Berk,MünchHdb d. GesR, 3rd ed. 2009, § 99, marginal. 47.
14 So § 172 para. 2 BGB.
15 So § 173 BGS.
16 Palandt, BGB, 64th edition 2005, § 242 Rdn. 55 f
17 Reuter, (footnote 10), § 86 Rdn. 11.
18 Reuter, (pn. 10), 5 86 Rdn. 11, culpable action of the foundation supervisory authority is assumed.
19 Arg. 5 173 BGB.
20 This is also the result of the decision of the Regional Court of Munich 1, 17 1-11C T 4668/09 R in an appeal decision concerning proceedings conducted by the authors under Sections 29 and 86 of the Civil Code against the opinion of the Government of Upper Bavaria.
21 About 5 21 BayStG.
22 Full/Sturb, Comm. Bavarian Foundation Act, 5th ed. 1 to § 13.
23 full/sturdy, (footnote 22), paragraph 2 to § 13.
24 The local competent court is the registry court at the local court, in fact the judicial officer.
25 Temporarily, or linked to the existence of certain other functions of the member of the Management Board.
26 For example, Article 12(1) provides 2 BayStiftG, the obligation to inform the Foundation without delay of changes in the composition of its organs. how this is to be checked, but it is not apparent
27 Westphalen, The supervisory authorities in the liability case, in: The elite of foundation experts, 2005, pp. 90 f.
28 Jakob, Schurz of the Foundation, 2006, pp. 257 ff., with w. N.
29 Cf. approximately Art. 7 BayStiftG

 

 

by Dr. Uwe Dörnbrack and Dr. Johannes Fiala

Published in DStR2009, 10/11.2009

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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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